Hi, I'd really appreciate some help. :) I lost my job a couple months ago, and took a withdrawal out of my 401k to help survive. Can anyone tell me exactly how bad the taxes will be on it? I will have some deductions to use, but honestly don't know how much that will help, or hurt me? Thanks for any help you can give! Thanks! Annie

Need to ask a couple of questions if you don't mind... first, did you take a "loan" or did you terminate the plan and surrender it for all it was worth ? Reason I ask is that the tax implications are different for loans than for a complete surrender.

If you withdrew it, it will be added to your income as earned income. If you are under the age of 59 1/2 there is a 10 per cent penalty.

Any funds taken out of a 401K are added to your income for the year. So whatever tax bracket that leaves you in that percentage will be due. Did the plan withhold the usual 20%? If you don't qualify for a hardship withdrawal (google 401K Hardship withdrawal for the qualifications, then you will alos be subject to a 10% penalty assuming you are under 59 1/2.

I'm wondering whether you took a withdrawal or a distribution on termination.

I didn't take a loan--I withdrew some of it, not all of it. I kept most of it in a ira account. On what I withdrew,I asked them to keep a % of it towards taxes. I'm just thinking about it and getting myself confused and worried :)

If you took a withdrawal and not a distribution you may not be able to avoid taxes by rollover. Generally only distributions are eligible for rollover. So all of the withdrawal may have to be included in your taxable income AND your IRA is invalid. I strongly suggest that you consult a tax specialist to see where you stand.

The amount you withdrew is taxable. What you had left is fine. It is still in an IRA. If you did not make a lot of money, you may be right where you would have been, had you worked. Except for the penalty. Just get a tax schedule and look.

As far as I remember from when I adminsitered a 401K and my recent research, you can only rollover a qualified distribution. Withdrawals are not eligible for rollover. Therefore, the full amount of the withdrawal would be taxable and the IRA contributions over the annual limit could be disallowed.

I do not understand where the rollover discussion is coming from. The person withdrew from a 401K to live on, there will be a 10% penalty and it will be added as earned income. They often hold out 20% hoping to take care of the penalty and added taxes. What IRA contributions over the annual limit are you talking about? I have reread the post and I just see the withdrawl. I was VP of a bank for years, but have been out of the industry for a while, but I believe the basic rules still apply.

I think you missed a subsequent post from her:

I added the bolding. This indicates that she took a withdrawal, not a distribution and that she deposited most of that withdrawal into an IRA. Since it was a distribution it is not eligible for rollover and if the amount was more than annual IRA limits then the overage will be disallowed.

She withdrew some of it and left most of it in an IRA. She did not say she deposited it into an IRA. She said she left it in an IRA. Are you thinking she had to withdraw all of it and then in turn put part back in? I think that is a supposition. I take it, she withdrew some to live on which she will receive a penalty and add as earned income. The rest she left in the retirement account, which is the logical intelligent thing to do. To withdraw the whole sum only to put some back in immediately makes no sense.
I am saying again, where do you see rollover funds?

First she "took a withdrawal out of my 401k". That means she received a check from the plan. If she had said that she had left most of it in the plan that would have been different. But a 401K plan is NOT an IRA. Therefore, if she took a withdrawal she had to do something with the money. The ONLY way it would have gotten into an IRA is she deposted it into one thinking that it would qualify as a rollover. That's what I took "left it in an IRA" to mean.

I see only two explanations here. Either she meant to say she left what she didn't withdraw from the plan in the plan or she deposited part of the withdrawal into an IRA. Its one or the other.

Scott, I did not come on here to disprove you. I will say this, when she withdrew the amount, surely she was not being helped with anyone so imcompetent that they would not tell her to leave it in a 401K plan rather than rolling it over into an IRA. AND she could have rolled it over IF she did it immediately. There are so many rules and regulations regarding retirement accts. I will not dispute all you are saying. I do know when I was working with them, the bank sent me to seminars at least twice a year just to keep up on changes and know how to best direct my customers. I have not been to seminars for a few years. There are 3 different types of IRA's, there are just so many variables to consider, she would need to talk to the place she has the retirement through. I rolled over some funds a few years back and my accountant was confused. The way the bank showed the transfer was confusing. Luckily I knew and was able to get it straight.

We can suppose all day long, and Scott, when she said she left it in an IRA, that is how I took it. She was saying ira and not 401K. So many customers of mine thought they were the same thing. IF you go out and get a retirement plan, you know the differences. If it is through your work, they just think it is all the same. That again is an assumption like thinking she took it out and put some back in. But we all know what they say about assuming anything. Right?

Well, see you are making an assumption that she had help or an advisor. That may not have been the case. But I think you are missing one point here. You can only rollover a qualified 401K plan DISTRIBUTION. You cannot rollover a withdrawal. That's the crux of my point. Doesn't matter whether she deposited part of the withdrawal immediately or not. If she put any of it in an IRA, then it goes as just part of the annual contribution.

Hopefully Annie will come back and clarify what she did so we can give her the best advice.

Ok Scott, you win. But Annie, please do not listen to him as he is pointing out a pointless point. I still believe if you withdraw from your retirement, I don't think you can do it without someone in the establishment helping you, nor can you redeposit it without help from an individual. These transaction are not made through the ATM. Goodness Scott, where did you work?

Ok enough is enough. Up to now it was a matter of interpreting what the OP said. You looked at it in one way, I looked at it in another. I explained exactly what my reasoning was and the rules applicable based on that reasoning. I left it so that the OP can look at how I interpreted things and apply my advice if the interpetation was correct.

At no time did I tell the OP that your advice was bad or not to listen to it. That was totally uncalled for and, if my interpretation is correct, taking the OP down the wrong road.

There are certain facts here; 1) the OP took a partial withdrawl from her 401k, 2) withdrawals are not eligible for rollovers, 3) the OP referred to leaving part of the withdrawal in an IRA. Those facts are clear. Based on those facts I came to the conclusion that she deposited some of the amount she withdrew into an IRA. Given facts 1 & 2 then whatever she deposited was not eligible for rollover and subject to annual IRA contribution limits.

The only way my advice would be incorrect is if she did not deposit part of the withdrawal into an IRA. Its possible I reached the wrong conclusion. I'm not saying it isn't. But my conclusion is valid based on the facts we know.

You reached a different conclusion based on her using the word "left" when referring to part of the withdrawal. You are also assuming that she must have had some knowledgeable advisors along the way. Your conclusion has validity also. But the only way we can know for sure is if the OP comes back and clarifies. But to bad mouth my advice is out of line.

Sorry, it's taken me so long to see your messages. Something happened and I wasn't getting them in my email. OK, this is what I did. When I left my work, I immediately transferred over half of my 401k to an IRA account. I then took a cash withdrawal of $25,000. They kept 10% out for taxes, so I received a check for less than $16,000. My question is, again, how much more will I have to come up with to pay the IRS. I will have some deductions figured in, like I have every year. I'm sorry for the confusion of my messages. I've just been stressing and worrying about this. I hope this clarifies my question? Thanks all!

OK, So you took a DISTRIBUTION of your 401K of more than $50K. You rolled over more than half into an IRA but kept $25K.

Now your math is wrong. If they took out 10% you should have gotten $22.5K. Even if they took 10% of the total you would have gotten less than $15K.

What I can tell you is you will have to pay a 10% penalty on the $25K. The whole $25K will be added to your taxable income for the year. How much you owe will depend on your total income. You will figure your total tax liability and then compare that to thhe amounts withheld. You should have gotten a 1099R by this time which lists the amount of the distribution and the amount withheld.

I am not getting involved in this!

I have enough hreatburn as is! :-)